Pension deal cuts $2 billion from $4.5 billion shortfall

by Campaign for Vermont

The Senate Government Operations Committee heard from six union representatives on Wednesday. Each of them had positive things to say about the Pension Task Force, the people who served on it, and the final product they presented. It was described as a “win” for everyone, particularly future retirees.

The Joint Fiscal Office provided an overview of the recommendations, which included:

• A combination of employee contribution increases and benefit changes.
  • Vermont State Employees Retirement System (VSERS)
    • No changes to current retired or vested members.
    • Employee contribution rates raised over 5 years.
    • Cost-of-Living Adjustment (COLA) increases adjusted for retirement plans going forward.
  • Vermont State Teachers Retirement System (VSTRS)
    • No changes to current retired or vested members.
    • Employee contribution rates raised over 3 years and progressively based on incomes.
    • COLA increases adjusted for retirement plans going forward.
• A commitment from the state to “pre-fund” the pension investment funds with one-time money to buy down the liability
  • VSERS
    • $57M one-time payment, plus the $150M set aside by the legislature last year.
    • The state will fund the ADEC “plus” payment beginning in FY2024 (around an extra $15M/yr) and continuing until 90% funded.
    • The state will start funding other post-employment benefits (OPEBs) to reduce long-term cost liability (instead of the current pay-as-you-go model).
  • VSTRS
    • $125M one-time payment
    • The state will fund the ADEC “plus” payment beginning in FY2024 (around an extra $15M/yr) and continuing until 90% funded.
    • The state will also fund the normal pension cost out of the Education Fund but the extra contributions will be paid out of the General fund to avoid disrupting property taxes.
    • The state will start funding OPEBS for teachers as well.

Combined, these steps would reduce the state’s long-term unfunded liability by $2B (out of the current $4.5B liability). The pre-funding of OPEBs and pension retirement funds will likely have a meaningful impact on the unfunded liability within the first year or two. If markets continue to perform well, this impact could be magnified.

According to the Senate Appropriations Committee, the Senate will seek to use the FY2021 surplus monies to buy down this liability even more.